4 key tips to keep in mind before opting for a two-wheeler loan

India is an attractive market for two-wheelers given our large middle and low-income population and subpar market penetration. Two-wheelers offer reliable mobility, and easier commuting, and function as income enablers for many sections of the population. According to National Family Health Survey (NFHS-5) (2019-21), around 54% of households own a two-wheeler such as a scooter or a motorbike. As per the Society of Indian Automobile Manufacturers (SIAM), two-wheeler domestic sales in FY22 are at 134.7 lakhs and motorbikes dominated the two-wheeler sales between FY18 to FY21 with more than 60% of the market share.

A recent report by CRIF High Mark CreditScape Volume XI - June 2022 on two-wheeler loans reported positive growth trends for the sector. There is an improvement in consumer sentiment as per RBI's consumer confidence survey in April 2022. Also, there is an interest in electric two-wheelers due to government subsidies being offered. Additionally, market dynamics such as flexible loan schemes and multiple lenders to choose from are fueling the sector's growth.

Applying for a two-wheeler loan may seem like a long process, but one can successfully apply for a loan and avail of it smoothly with the right steps and guidance. Two-wheeler buyers applying for a loan can utilize the tips and advantages listed below to make an informed choice.

Here are some tips to ensure a smooth two-wheeler loan application process:

1. Determine your eligibility and choose the best option: You can determine whether you fulfill the loan eligibility criteria specified by the lenders, such as the minimum gross income, age limit, and residency status among other parameters. Basis this you can then check which lender offers a loan with better terms that meet your requirements and is beneficial to you. Also, check for special offers by lenders, especially during the festive season

2. Calculate the loan amount: Examine the loan amount provided by the lender and ensure that it meets your financial needs to avail of a two-wheeler loan. Plan the loan keeping in mind EMI options available, down payment to be made, competitive interest rate, loan tenure, prepayment option, and other charges

3. Keep the documents ready: Generally, at the time of the loan application process, lenders ask for documents like income proof, bank statements, and KYC documents. Check about the documents required for the loan application and organize them before submission to ensure a smooth approval process

4. Strong credit score: Your credit score is one of the important factors the lenders consider while evaluating the loan application. To maintain a good credit score, you should repay your debts on time, maintain a good credit utilization ratio, avoid multiple credit inquiries, and monitor your credit report regularly. A healthy credit score will help you get better loan terms as it proves your creditworthiness to the lender

Further, you may take advantage of many appealing features that two-wheeler loans offer to buyers. Some of the key features are listed below:

Easy and quick loan application process: Lenders often operate from dealer premises and typically offer a simple loan application process and quick credit decisions. Most lenders nowadays offer doorstep banking and fully digitized processes to eligible borrowers

Affordable interest rates: In an expanding market with many players offering two-wheeler loans, two-wheeler loans are available at attractive interest rates

Flexible loan schemes: Two-wheeler loans are available with a flexible repayment period ranging from 12 months to 60 months

Pay off your loan in manageable EMIs: Higher the loan tenure, the lower will be the EMI. You should select a loan tenure that best fits your financial situation so that EMI payments do not overburden your wallet. Structured EMI options are available for both salaried and self-employed individuals

Improve your credit score: Repaying the loan amount in time will help in building a good credit history and help raise your credit score

Buyers should take note of these appealing features of two-wheeler loans and follow these tips. An informed and planned approach will prevent unforeseen surprises and give you better control over your finances.

Author: Sanjeet Dawar, Managing Director, CRIF High Mark